SBA 7(a) Q&A
Short answer
The ideal coverage amount for key-person life insurance typically considers the individual's contribution to profits, the cost of finding a replacement, outstanding business debts, and future revenue loss.
There's no single formula, but common methods include multiplying the key person's salary by 5-10 times, estimating lost profits for several years, or covering specific financial obligations like outstanding loans. The goal is to quantify the financial impact of their absence.
If a key salesperson generates $500,000 in annual profit and it would take two years to replace them and restore sales, a business might consider a $1,000,000 policy. This could also be combined with covering a $250,000 business loan.
Last reviewed 2026-06-15 · SBA sources checked through 2026-06-15. DealRoom analysis of business life-insurance and SBA collateral-insurance practice (SOP 50 10 8). Not insurance, legal, or tax advice. Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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